European Parliament Eyes Hedge Fund Bonus Limits

With a deal in hand to cap bankers' bonuses, European Union lawmakers are turning their eyes towards the bloc's hedge funds.

Members of the European Parliament have spoken hopefully of a "snowball" effect that could hit hedge funds, private equity firms and other areas of the financial industry. German member Udo Bullman said specifically that the focus was now on capping bonuses at alternative investment firms, Reuters reports.

Under the proposed bank compensation rules, bonuses will generally be limited to the amount of a banker's salary. With shareholder approval, bonuses could be as high as twice salary.

Unsurprisingly, word of bonus restrictions did not go over well with European hedge funds, which already face new rules requiring between 40% and 60% of bonuses to be deferred. "It would be gross interference if there was a bonus cap in a private industry," one hedge fund executive, who asked to remain anonymous, told Reuters.

Another expressed concern that the bonus restrictions would cover more than simple bonuses.

"The concern would be that they would copy and paste [the bank rules] for hedge funds and would define performance fees as the 'bonus,' which would be most unfair," the executive told Reuters.

Others were less concerned.

"Things like this are completely unpoliceable," a hedge fund manager told Reuters. "If you tax people for writing with their left hand, they'll write with their right hand."